Many people ask the question, “What is Gap Insurance?” Well it’s rather simple actually, and it’s a type of insurance that just about anyone with a monthly payment should have, if you don’t have it you are definitely taking a risk without gap insurance for cars.
Take this example – you purchase a car and obtain the usual comprehensive and full collision insurance coverage. The car then ends up in an accident and is written off 2 years after it was purchased. Whilst the other driver will be covered, the full purchase cost of the car will not be. Taking into account decreasing residual values, this can leave the owner vastly out of pocket. For example, a car is purchased for 20k and the payments are fixed. Within 2 years it will only be worth 12k to the owner, but the payments still have to cover the initial 20k price – the difference has to be paid out of the owners own pocket.
Therefore, “GAP insurance” is used to cover the difference between the actual value of a car at the time of an accident and how much the buyer still has outstanding on their payments. Using the example above, the GAP insurance policy would cover the 8k.
The residual value issue highlighted above is common amongst all makes and models of cars – whilst some types will hold their residual value better than others, all cars will at some point start to drop in value. Whether this begins over time or at the point the car is driven off the forecourt, the need to purchase a GAP insurance policy should always be at the forefront of a purchaser’s mind.
The final point to note, it is extremely important to purchase your Gap Insurance policy at the same time that you purchase your car and take out finance. The policy will be based on the value of the car at the time it is taken out, not the initial value, therefore if you do suffer from rapidly dropping residual values, a policy taken out six months into the deal could still result in a large payment to be made in the event of an accident.
ALA.co.uk offer GAP Insurance for your car, van or motorcycle. Free transfer and cheapest prices guaranteed! Get a quote and buy online now!
Tags: auto insurance, gap insurance